AV Analysis Week 31
This article provides a quantitative outlook on the inflow numbers of the Airbus A320neo and the Boeing 737 MAX families. As well as the stored numbers of A320ceo and Boeing 737 old generation families. Offering insights into the prospects of Narrowbody aircraft within East Asia.
Introduction
East Asia is one of the most significant markets for new technology Narrowbody aircraft. The demand for these aircraft has increased significantly since the Covid-19 pandemic as demand for travel has rebounded, most recently with the reopening of China’s borders. In this article, we are focusing on the two dominant Narrowbody types: the Boeing 737 and the Airbus A320.
Number of New Technology Aircraft That Have Been Delivered To East Asian Airlines
Figure 1: New Tech Narrowbody’ indicates Airbus’s A320neo family (A319neo, A320neo, A321neo) and Boeing’s 737 MAX family (MAX 8, MAX 9) in the chart data.
As seen in figure 1, despite well publicised post pandemic supply chain challenges, East Asian airlines have been experiencing a consistent delivery of new generation aircraft over the last twelve months. A total of 151 New Tech Narrowbody aircraft, comprising both new and used units, were added to the fleet in that timeframe. These aircraft were acquired for both replacement and growth.
Considering the manufacturer targets for increased production and the inclusion of deliveries of used new tech aircraft, it is projected that by 2025 the introduction of new tech aircraft in East Asia will increase by approximately 10-20% from the current monthly average delivery of 32 aircraft. This projection takes into account the expected growth in production capacity and the demand for New Tech aircraft in the region. Recently this has been highlighted by the fact that Airbus has been actively restructuring its A320neo family production line by using the A380 facility space, to bring them closer to their target of producing up to 75 A320neo family aircraft per month by 2026.
Number of Old Technology Aircraft That Have been Stored In East Asia
Figure 2: The numbers exclude aircraft that are in storage for maintenance purposes. B737 Classics family includes B737-300, -400, -500 and -600; the B737 Next Generation includes the B737-700, -800 and -900/900ER. A320ceo family includes A318, A319, A320, and A321 in the chart data.
Figure 2 indicates that there has been no significant change in the number of inactive older generation Boeing 737 (comprising the B737 ‘Classics’ and the ‘Next Generation’ families) and A320ceo family aircraft in storage since January 2023.
This may indicate that the demand for both New Tech and Old Tech Narrowbody aircraft remains strong in East Asia. This is in part due to the supply chain issues that are constraining New Tech aircraft deliveries. Until this is resolved, it is forecasted that the market will continue to show strong demand for both types of aircraft. Based on discussions with industry players in East Asia, it appears that, far from replacing their older tech fleets, airlines are contemplating lease extensions ranging from 4 to 6 years.
This demand has resulted in upward pressure on values, even for the older generation aircraft. The table below outlines the Market to Base Value ratio of these aircraft which in many cases exceeds 100%.
Figure 3: The Market Value to Base value ratio of 5 year old and 10 year old aircraft in old generation category. The values are calculated based on half life and unencumbered conditions.
Shift in the Balance Between Aircraft Manufacturers
The following figures, 4 and 5, describe the active Old Tech Narrowbodies (Boeing 737 Classics, Boeing 737 Next Generation and Airbus A320ceo families) operated by airlines based in East Asia and their backlog for New Tech Narrowbodies (Boeing 737 MAX and Airbus A320neo families) respectively. By comparing the two sets of data, we can see a shift from a Boeing dominated older technology fleet toward Airbus. Chinese manufacturer COMAC is also entering the market with its C919 Narrowbody; however, its backlog is currently exclusively domestic, and for that reason, we are not including it in this analysis.
Figure 4: The number of Old Tech Boeing 737 Old Tech family and Airbus A320ceo family in active status in East Asia, presented in percentages.
Figure 5 : The number of Boeing 737 MAX family and Airbus A320neo family on order from airlines in East Asia, presented in percentages. The Boeing 737 MAX family includes MAX 8, 9 and 10. Airbus A320neo family includes A319neo, A320neo and A321neo.
When examining the backlogs of East Asian airlines, it is observed that the 737 MAX family has a total backlog of 2,693 aircraft, while Airbus has a total A320neo family backlog of 5,453 aircraft.
Orders from mainland China carriers account for 66% of the total East Asian backlog: 47% are for the A320neo family and 19% for the 737 MAX. In South Korea and Japan, the situation is reversed, with carriers in those countries placing proportionately greater emphasis on Boeing aircraft.
Diverse aircraft variants:
Currently, the majority of orders from East China Airlines from Boeing are the MAX 8 variant. While their counterpart Airbus, offers two major airframes. The MAX 8 variant represents a total of 27.34% of the total backlog, while the A320neo and A321neo represent a total of 64%. This indicates that the certification issues on MAX 10 have impacted the significant difference in backlog between Airbus and Boeing. This could also mean that the backlog differential between the two Original Equipment Manufacturer (OEMs) could be narrowed in the future if Boeing achieves certification on their MAX 10 variant. This will certainly attract more orders.
If Airbus demonstrates that the A321XLR, which is due to enter service in 2024, can successfully establish itself in the commercial aircraft market and meets the customers' needs, there is a high chance that the A321XLR could play a significant role in increasing the number of Airbus aircraft within the portfolios of East Asian lessors and airlines. Considering that the A330 Widebody model is a highly favoured aircraft type for regional flying within East Asia, the program could attract several airlines looking to replace Widebody capacity with the A321XLR.
Conclusion
Demand for these aircraft has increased significantly since the Covid-19 pandemic as demand for travel has rebounded. This demand has resulted in a recovery of values for both new generation and older generation Narrowbodies. Older technology aircraft are continuing in service with the extension of lease dates, alongside deliveries of newer technology aircraft.
The market in East Asia is changing. There appears to be a rebalancing of the aircraft portfolio away from Boeing towards Airbus products, and COMAC has recently entered the domestic Chinese market.
The interplay between old and new tech and is complex, dynamic, and is likely to continue for some time. Good investment decisions require up to date, quality data, and this is where our daily updated, objective values and datasets can help. Get in contact with us today to discuss the content of this article and to arrange a demonstration.
Data as of July 2023
Disclaimer: The purpose of this blog is to provide general information and not to provide advice or guidance in relation to particular circumstances. Readers should not make decisions in reliance on any statement or opinion contained in this blog.
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